Daniel Gallagher, Robinhood’s Chief Legal Officer, has criticized the U.S. Securities and Exchange Commission (SEC) for its harsh regulatory approach toward the crypto industry, warning that it costs the U.S. its competitive edge in the global digital asset market.
In written testimony submitted ahead of a September 18 hearing before the House Financial Services Subcommittee on Digital Assets, Gallagher labelled the SEC’s enforcement strategy as a “scorched earth” approach.
Gallagher explained that Robinhood has made substantial efforts to comply with SEC regulations, including participating in over a dozen meetings and discussions over the past 18 months.
Despite these efforts, the company received a Wells notice from the SEC in May, signalling potential enforcement action.
He also noted that SEC staff had often failed to provide clear guidance on how Robinhood could move forward with its registration proposal for digital assets.
The heart of Gallagher’s critique lies in the SEC’s lack of clarity on which digital asset transactions qualify as investment contracts.
This uncertainty, he said, has led to numerous lawsuits against crypto firms, stifling industry progress and creating a cloud of uncertainty for investors and companies alike.
He argued that “regulation by enforcement” only harms consumers seeking access to digital assets while discouraging innovation in blockchain technology.
Gallagher highlighted the contrast between the U.S. and Europe, where the Markets in Crypto-Assets (MiCA) regulation has provided a clear and unified framework for the industry.
This regulatory certainty, he suggested, is allowing innovation to flourish overseas while the U.S. crypto market struggles under the weight of ambiguous and aggressive enforcement actions.
To address these challenges, Gallagher proposed that the SEC use its existing authority under Section 36 of the Securities Exchange Act of 1934 to establish a clearer framework for registering and regulating platforms dealing in digital assets.
This, he argued, would cover critical issues like consumer protection, custody requirements, and transaction reporting—measures that could have helped prevent the fallout from the FTX collapse in 2022.
Gallagher also stressed the need for Congress to step in and create a long-term regulatory framework that provides clarity for token issuers, exchanges, and other market participants. Without this, he warned, the U.S. risks falling behind other regions in fostering responsible blockchain innovation and maintaining its leadership in the global digital asset market.
